FORMER SENIOR EXECUTIVE OF ATLANTA-BASED COMPANY
INDICTED FOR SECURITIES FRAUD

ATLANTA, GA - JOSEPH M. ELLES, 57, of Las Vegas, Nevada, has been indicted by a federal grand jury on 32 federal charges, including securities fraud, wire fraud, causing the filing of false financial statements, and falsifying corporate books and records, relating to ELLES’ role in alleged accounting irregularities at the Atlanta-based children’s clothing manufacturer, Carter’s, Inc. ELLES was arraigned today before United States Magistrate Judge Janet F. King, who set bond at $100,000.

United States Attorney Sally Quillian Yates said of the case, “The investing public was cheated out of its right to rely on the financial statements and other information released by this publicly-traded company. This Defendant, a former senior executive of a national company based in Atlanta, is accused of cooking the books and causing his company to falsely inflate its income by hiding tens of millions of dollars in expenses. This indictment should serve as a reminder that the President’s Financial Fraud Task Force remains committed to protecting the integrity of our financial markets and to rooting out fraud.”

According to United States Attorney Yates, the charges and other information presented in court: ELLES was a Senior Vice President at the Atlanta-based children’s clothing company, Carter’s, Inc., from at least 2005 through mid-2009, and was in charge of all of Carter’s wholesale sales, including sales to retail chains such as Kohl’s Department Stores. The indictment alleges that ELLES deliberately caused Carter’s to falsely record in its accounting books tens of millions of dollars in rebates that ELLES had agreed to pay to Kohl’s and other retailers.

The indictment alleges that from 2005 and into 2009, at the end of each fiscal year and at the end of several fiscal quarters, ELLES agreed to pay rebates to Kohl’s and other retailers referred to as “margin support” or “accommodations.” These rebates, which are common in the apparel industry, help compensate the retailer in certain circumstances where the retailer was unable to make its expected profit margins from the sale of Carter’s goods. These rebates are expenses that reduce Carter’s net sales revenue and profits.

The indictment alleges that ELLES manipulated and caused Carter’s to falsely record margin support rebates in its accounting records. He did so by misrepresenting that millions of dollars in rebates to Kohl’s related to sales made in current fiscal years or quarters, rather than the prior years or quarters in which the sales were actually made. This caused Carter’s to record all of the sales revenue from selling goods in a particular year or quarter without accounting for all of the expenses (“accommodations or margin support”) that the company was incurring in connection with those sales.

Carter’s is registered with the U.S. Securities and Exchange Commission (“SEC”) and its stock is publicly traded on the New York Stock Exchange. It is obligated to report its financial results every three months and annually, in annual and quarterly filings with the SEC, so that members of the public can make informed investment decisions. As a result of the alleged fraud, ELLES caused Carter’s to materially overstate its net income and other items in its publicly filed financial statements for several years and quarters from at least 2005 into 2009.

In late October 2009 and continuing into December 2009, Carter’s announced that it had discovered accounting regularities and that it intended to re-state several years worth of previously-published financial statements. Carter’s stock price fell over 20% on the day it announced that it would delay the release of its financial information for the third quarter of 2009 in order to review its accounting for accommodations. ELLES had already left the company earlier that year. The indictment alleges that ELLES executed the fraud scheme in order to enrich himself through salary, bonuses, and Carter’s stock and stock options.

The securities fraud charge carries a maximum sentence of 25 years in prison and a fine of up to $250,000. The 16 charges for causing the filing of false financial statements with the SEC and the falsification of corporate books and records, in violation of the Securities Exchange Act of 1934, each carry a maximum sentence of 20 years in prison and a fine of up to $5 million. The 15 wire and mail fraud charges each carry a maximum sentence of 20 years in prison and a fine of up to $250,000. In determining the actual sentence, the Court will consider the United States Sentencing Guidelines, which are not binding but provide appropriate sentencing ranges for most offenders.

Members of the public are reminded that the indictment only contains charges. The defendant is presumed innocent of the charges and it will be the government's burden to prove the defendant's guilt beyond a reasonable doubt at trial.

This law enforcement action is part of President Barack Obama's Financial Fraud Enforcement Task Force.

President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

This case is being investigated by Special Agents of the Federal Bureau of Investigation. The SEC has engaged in a separate investigation of possible civil violations of the U.S. securities laws, and in 2010 brought a complaint alleging securities fraud and other violations against ELLES. That case remains pending.

Assistant United States Attorneys Justin S. Anand and David M. Chaiken are prosecuting the case.

For further information please contact Sally Q. Yates, United States Attorney, or Charysse L. Alexander, Executive Assistant United States Attorney, through Patrick Crosby, Public Affairs Officer, U.S. Attorney's Office, at (404) 581-6016. The Internet address for the HomePage for the U.S. Attorney's Office for the Northern District of Georgia is www.justice.gov/usao/gan.